OICCI survey: Business climate improves in Pakistan
KARACHI: The business climate in Pakistan has improved noticeably over the last six months because of efforts of authorities for taking tight measures to maintain law and order in the country, on the contrary, the confidence level of leading foreign investors declined in the local market on the back of new taxes on businesses.
The Overseas Investors Chamber of Commerce and Industry (OICCI) revealed the results of its Business Confidence Index (BCI) Survey – Wave 11, showing a further 4% improvement over Wave 10 results announced in April 2015.
At 22% positive, the overall BCI score showed further improvement as compared to 18% positive in Wave 10. Improvement was recorded in all sectors with the retail sector once again leading the upswing with 25% positive sentiment, showing 10% growth. The services and manufacturing sectors followed with a modest net increase of 3 and 2% respectively. Notably, though the overall business sentiment increased over the last six months, confidence level of leading foreign investors declined in comparison to Wave 10 results, with OICCI members’ score going down 7%.
OICCI President Atif Bajwa commented, “This could be due to strong resentment on the imposition of the new “Super tax” at rate of 3 and 4% in the 2015-16 Finance Act, which impacts most of the large foreign investors, who are also frustrated with the long delays in the tax refunds process.”
Additionally, improvement in the overall BCI was not one directional as a number of respondents expressed concern on the very same factors viewed favourably by the majority. Specifically, the real estate, tobacco and transport and communication sectors flourished most, followed by petroleum, chemicals and financial services. Textile and cement sectors, on the other hand, remained subdued. Metropolitan cities across the country recorded higher business confidence with Karachi, Rawalpindi and Islamabad, Sukkur and Quetta respondents indicating a more positive outlook. Faisalabad and Sialkot, that respectively host the textile and non-metallic sectors, remained negative.
“The firm stance of the authorities to tackle law and order issues, especially in Karachi and northern areas, coupled with improved energy management were among the key drivers for improved business confidence,” said OICCI President Atif Bajwa. “The record low level of inflation and borrowing rates together with wider media coverage of upcoming projects, especially those related to the Pak-China Economic Corridor, as well as a relatively stable political environment, have all helped boost business confidence as revealed in the survey.”
Looking ahead, the survey respondents expressed continuing optimism for next six months with 42 expecting increase in sales, 37% forecasting growth in profitability and one-third planning expansion in their businesses.
Summarising the survey results, Bajwa stated that positive business sentiment should not be taken for granted and drive focus away from critical actions needed to address key issues hindering good governance and ease of doing business. Pakistan’s rating has gone down further in this year’s World Bank report on “Ease of Doing Business” and there is an alarmingly low level of FDI in the country over the past few years. The authorities need to devise strategies to address issues of policy implementation, lack of coordination among federal and provincial authorities, tax anomalies and settlement of the long pending tax refunds through proactive engagement of key stakeholders, he added.
Conducted through field interviews in all four provincial capitals, Islamabad and key business towns across the country, the survey is based on feedback from representatives of all business segments in Pakistan, including retail, and covers roughly 80% Gross Domestic Product.